Let’s assume that you have an available starting capital, how would you manage it? Would you invest only on stocks of a growing economy? Would you purchase energy stocks or invest on foreign currencies? Unless you have a great source of information, the answer is never invest to just one! Targeting only a specific investment can be disastrous and if you got profit once it doesn’t mean you will have again anytime soon. I don’t think it worth’s the risk, being a more cautious player can be more beneficial in the long run!
In a portfolio no matter the amount of money anyone is prepared to invest,
it is mandatory to spread the financial risk. It is obvious for many, but there are always some who forget this basic principal, including myself! Let’s say that we have two people, Peter and Tinkerbell. Peter loves silver market although he knows the great fluctuations in its price and on the other hand Tinkerbell, who wants to reduce her investment risk, by spreading her portfolio on silver, stocks and foreign currencies. If silver falls 20% Peter has a problem but Tinker is more prepared for that scenario and will have fewer losses!
it is mandatory to spread the financial risk. It is obvious for many, but there are always some who forget this basic principal, including myself! Let’s say that we have two people, Peter and Tinkerbell. Peter loves silver market although he knows the great fluctuations in its price and on the other hand Tinkerbell, who wants to reduce her investment risk, by spreading her portfolio on silver, stocks and foreign currencies. If silver falls 20% Peter has a problem but Tinker is more prepared for that scenario and will have fewer losses!
Another important thing to take under consideration is how easy is to liquefy your portfolio in extreme circumstances. Let’s assume that Peter has invested his total capital on gold bullion coins and Tinkerbell on gold ETFs. Assuming that we see a great fluctuation in the price of gold (positive or negative, it doesn’t matter) who will be able to benefit most or protect his investment? Tinker has ETFs so there is no problem to liquefy her assets and get the starting capital with the 20% profit! But Peter, since he owns physical metal, has to find a buyer for his coins as soon as possible or he won’t benefit! On the other hand instead of a +20% assume a -20% fall in price. It is obvious that Tinker can sell her assets when she sees a negative sign. Instead Peter is more likely to not find a buyer, because everyone will wait for prices to drop even more.
Finally take notice that no matter how much money you have to invest on something, you should always have a good amount of cash available το take advantage of future opportunities (around 30%-40%)!
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